Oil wobbles near $70 as US keeps world guessing

Iran’s rial trades near record lows against dollar in parallel market amid heightened speculation on whether Washington will pull out of nuclear deal

Washington: Oil retreated from the highest level since 2014 as investors weighed competing views on whether the US will reimpose sanctions on Opec producer Iran and the potential consequences of such a decision.

New York futures slid as much as 1.3 per cent, with US President Donald Trump set to make a call on whether he’ll pull out of a 2015 deal between Iran and world powers that had eased sanctions on the producer in return for curbs on its nuclear programme. In the previous session, prices briefly slid below $70 (Dh257.11) after breaching the level for the first time in three-and-a-half years following news that an announcement will be made at 2pm Tuesday in Washington.

Meanwhile, Iran’s rial traded near record lows against the dollar in the free market on Tuesday as Iranians tried to buy hard currency, fearing economic turmoil if Trump withdraws from the deal.

The dollar was selling for 65,000 rials, according to foreign exchange website Bonbast.com, which tracks the free market. That was down from 57,500 at the end of last month and 42,890 at the end of last year.

Economists inside and outside the country said the rial was being driven down by heavy demand for dollars among Iranians who feared a US pullout from the nuclear agreement would lead to the resumption of US sanctions against Tehran, deterring other nations in Europe and Asia from developing business ties.

The oil price volatility has been spurred by swirling speculation over the impending decision. While foreign officials and analysts say Trump is likely to remove the US from the pact, the president may also surprise allies by agreeing to stay in the accord a while longer as American and European diplomats forge side deals aimed at addressing his concerns.

The potential fallout in the oil market is unclear. While consultant FGE is among industry watchers who have said renewed US measures may cut production from Opec’s third-largest member, Barclays Plc sees Iran’s output little changed in 2018. How European and Asian oil buyers deal with possible American action, as well as the effect on Opec’s output curbs aimed at shrinking a global glut, will also be watched.

“Reaching the $70 milestone gave investors a sense of accomplishment and triggered profit-taking,” Satoru Yoshida, a commodity analyst at Rakuten Securities Inc, said by phone from Tokyo. Still, “oil is trading around $70 as the market is factoring in the possibility that the US will unilaterally terminate the Iran deal and reimpose sanctions.”

West Texas Intermediate oil for June delivery dropped as much as 94 cents to $69.79 a barrel on the New York Mercantile Exchange and traded at $70.04 at 3.30pm in Singapore. The contract climbed $1.01 to $70.73 on Monday. Total volume traded was about 26 per cent above the 100-day average.

Brent for July settlement fell 60 cents to $75.57 a barrel on the London-based ICE Futures Europe exchange. Prices on Monday climbed 1.7 per cent to $76.17. The global benchmark crude traded at a $5.55 premium to July WTI.

Futures for September delivery rose 0.2 per cent to 459.1 yuan a barrel on the Shanghai International Energy Exchange. The contract rose 2.6 per cent on Monday.

While oil has rallied this year on everything from heightened geopolitical risks in the Middle East to persistent output curbs by the Organisation of Petroleum Exporting Countries and turmoil in Venezuela, it’s been driven by speculation over Iran in recent days. It’s helped overshadow booming US production that risks undermining Opec’s production curbs.

A potential US withdrawal isn’t backed by any of the other five countries that are part of the agreement. UK Foreign Minister Boris Johnson is in Washington this week to make a last-ditch argument to persuade Trump to remain in the accord, following visits by French President Emmanuel Macron and German Chancellor Angela Merkel.

Israel, meanwhile, has called the accord fatally flawed and must be “fully fixed or nixed” to stop Iranian aggression sooner than later. Iranian President Hassan Rouhani has warned that the US would face “historic” regret if it pulled out.

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